In a recent Economics Letters article, CRA’s Martino De Stefano and Serge Moresi show how to improve the second-score auction model that is often used to quantify the unilateral effects of horizontal mergers in bidding markets. The model allows for more general substitution patterns among bidders than the commonly adopted, but in many contexts restrictive, assumption of proportionality to market shares.
The authors illustrate the importance of allowing for more flexible substitution patterns using the 2012 merger of Bazaarvoice and PowerReviews as an example, which was challenged by the US DOJ. This example reveals that imposing proportionality to shares can potentially bias the predicted price effect from the merger substantially.
Read Merger simulation in second-score auctions: A nested logit model.
